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What should accounting cost you?
Accountants bill for their services in a number of different ways. But are you getting value for money? Our quick guide helps you find out.
When it comes to the outgoings and incomings for your business, accounts are generally seen as the bean counters.
But when it comes to putting an actual tag on the cost of an accountant yourself, what could hiring someone to crunch the numbers cost you?
There are many different ways for accountants to price their services out to you.
So it may be time to review how are you getting billed at present.
The Billable Hour phenomenon
For very much all of last century, accountants have had a good run when it comes to choosing an hourly rate to match their ego and clock up hours, all while working with your finances and sending you a sizeable bill afterwards.
This practice has been prone to misconduct.
I’ve heard numerous stories, where clients have been invited to annual check ups with their accountant, only to talk shop on family and hobbies with a dash on the tax returns. Then by the end of the session they get charged an hourly rate for the privilege!
The billable hour model is a relic of ancient timekeeping and lends itself to massive inefficiencies, both for client and accounting firm alike.
Think about it from the accounting firm’s perspective. If an accounting firm’s IT systems lends itself to printing wads of paper and maintaining handwritten manual journals, then a job is far more likely to involve more cost based on additional administration time (not to mention trees felled and paper cuts incurred).
This system is loaded with inefficiencies, which the firm’s partners are not likely incentivised to change based on their current time-based remuneration.
Moving to Fixed Fees
Most modern professionals are geared towards the phenomena of the fixed fee. What this means is coming to an arrangement with your financial advisor on a pre-arranged scope of services whereby an agreed fee is paid on completion, or in some cases, a deposit.
The pros for seeking out a fixed fee firm are three-fold.
Firstly, you are getting what you asked for – no additional “gotcha” services (with corresponding fees). Remuneration paid is results based, rather than for professionals sitting on your accounts.
Secondly, you are much more likely to get an efficient service. The firm is not rewarded for being sluggish on turnaround times, and;
Thirdly, you can ably budget out the service and make sure it meets your cashflow requirements beforehand.
This is even more cutting edge systems for payments – for accountants at least.
Most services you pay tech giants for online – Netflix, Dropbox, Google Apps are on a monthly subscription basis – it’s easier to manage payments and you just pay for the months you use the service.
Don’t need the television subscription because you’re heading on a backpacking journey across Europe? Sure – cancel the subscription.
Just a generation ago you could be caught making a huge investment on some software only for a more updated version to come out a few months after, meaning the value provided was dependent on the timing of the purchase.
With a subscription you are usually on the latest version of the service for as long as you are on the plan.
At our firm we chose to employ a subscription model via our monthly package fee, so you only pay for the months you receive our support, and not without.
This mode of pricing represents the next generation of pricing, whereby professionals get rewarded based on the value that they add to client’s situation.
I’ve seen it happen quite well with some marketing agencies in particular, where they charge based on a value of the new business they bring in. Another really common example is the real estate agency where the agent gets a few percentage points of the transaction.
If a consultant brings you an additional $20,000 of value (which otherwise wouldn’t be there) wouldn’t you want to incentive them to deliver more of said value?
At Fullstack, we’ve taken a similar route, whereby our packages are linked to the amount of revenue/transactions that a business does.
Our reasons for this are plenty. At earlier stages in a business’ lifecycle there will be less funds to dedicate towards accountants and advisors (like us) so it doesn’t make commercial sense to make any major financial setbacks to clients. For more established businesses we experience a similar level of success and plan for the future.
By linking our own financial success to that of our clients, we are incentivised to give them an exceptional platform to grow their company as best as possible. We feel we have an excellent buy-in to the welfare of our clients – almost like investing, but without paperwork of entering the cap table.
As the business grows in success, not only do we know our client’s situation inside out, but we are continuously incentivised greatly to make a real impact on the growth of the business.
How are you getting billed at the moment?
At the end of year, it’s always sensible to review the billing relationship with your advisors, particularly before you sign up to another round of services or project.
- Ultimately it comes down to a very simple question. Are you getting value for your money?
- Is the business expertise just what you needed?
- Are your accounts prepared in real-time?
- Is the ATO kept content?
- Are you confident about your tax situation to be successful in business?
If your accounting firm can satisfy most or all of the above at an affordable price, then that’s what your business needs.